Selling a financial planning firm: why the headline offer is only the start

Most conversations about selling a financial planning firm begin with a multiple. Eight times profit, six times recurring income. But the number on the offer letter and the amount that eventually reaches your bank account can be very different things. In this Adviser 3.0 session, Victoria Hicks, Chief Executive Officer of Melo, took one example UK advice firm and walked through three offers from three different types of buyer, showing how payment terms, earn-out tests, buyer strategy and tax change the real value of a deal. What follows is a summary of her session. The scenarios are illustrative, and the principles apply whoever you choose to work with.

Why advice firms attract strong offers

Victoria started with some good news. Across all sectors, UK financial planning firms can typically sell for more than double the average multiple achieved by UK businesses as a whole. The reason is quality of earnings. Recurring, repeatable revenue can be transferred from one owner to another, clients are unusually loyal (most firms only lose clients when they pass away or move), and an ageing adviser population means plenty of owners want to exit while well-funded acquirers want to grow.

For a wealth-only firm of the size used in the session, Victoria put the market range for a headline offer at around 7.5 to 9 times adjusted profit. Firms with a large share of initial fees, or a mortgage arm, tend to be valued differently, which is why the session deliberately used a simple, recurring-income business.

But the headline is rarely what a seller receives. Deals for advice firms usually involve a sizeable earn-out, or deferred consideration, with conditions attached. Whether those conditions are met depends heavily on your staff and clients staying on board after completion.

One example firm, three buyers

The session used a single illustrative firm throughout:

Three types of buyer then make an offer, each shaped by its own strategy and operating model:

Offer 1: the profit test problem

The first offer looks strong: 8.5 times adjusted profit, giving an enterprise value of £5.355m (around 3.57 times recurring income). It is paid on a very typical basis: 50 per cent on completion, then 25 per cent at the end of each of the next two years. It is a straightforward "maintenance" deal, meaning the seller is paid in full if profit holds up, with no extra reward for growth. If profit falls, the deferred payment is reduced by £6 for every £1 of shortfall.

Victoria's first concern was the profit test itself. Once you have sold, how much control do you really have over profit? The buyer may add costs, change budgets or block recruitment, and post-sale disputes over what counts as a cost help no one. Her preference is to remove a profit test altogether and test something more controllable, such as turnover. Where profit must be tested, agree the budget, recruitment plans and any buyer-imposed costs before you sign.

She then showed what can happen with a short earn-out if something outside your control hits new business, as Covid did. In the scenario, recurring income holds steady but initial fees halve from £300k to £150k in both test years, with costs unchanged. Profit drops from £630k to £480k, and at £6 for every £1, each deferred payment loses £900k:

Markets and new business tend to recover, but a two-year earn-out leaves no time for that recovery to count. The buyer ends up in just as good a position, while the seller absorbs the hit. Victoria's point was that the downside ratio, and ways to insulate deferred payments such as blending results across years, deserve as much negotiation as the headline multiple.

Offer 2: the above-market number

Some acquirers make offers well above the normal market range. In the example, a vertically integrated buyer offers six times recurring income: £9m for the full book. That is a striking number next to Offer 1, but Victoria was direct about why it exists.

In the scenario, the detail changes the picture considerably:

The illustrative total comes to £3.51m: £5.49m below the opening headline and £2.34m below the revised figure. Victoria also noted the human cost that numbers do not show. An owner who has spent 20 or 25 years building a client bank with barely a complaint may not want to spend the end of their career handling unhappy clients.

Her wider advice was to ask what will happen to the office and the team, not just the money. Small details matter: an out-of-town office with free parking may be exactly why clients visit and staff stay, and moving everyone into a city centre office could quietly undermine the deal you are relying on.

Share sale or asset sale?

Offer 2 also raised a point every limited company owner should check early: is the buyer acquiring your shares, or the company's assets? Victoria was clear this was a high-level overview rather than tax advice, but the difference can be significant.

In a share sale, the shareholders sell personally, so any gain is taxed on them as individuals. Where Business Asset Disposal Relief is available, qualifying gains are taxed at 18 per cent, with the remainder taxed as capital gains at 24 per cent. The lifetime limit for the relief is due to fall from £1m to £500,000 per person for disposals on or after 6 April 2027.

In an asset sale, the company sells, so the company pays corporation tax on the proceeds. Because most advice firm owners then want to wind up the regulated entity, the money usually has to be extracted again, often through a members' voluntary liquidation, creating a second tax charge. That is why, where it is possible, sellers often aim for a share sale, and why it is worth confirming early with your own tax adviser what structure is on the table.

Offer 3: lower headline, built-in upside

The third buyer wants the firm as its new regional hub and plans to keep every member of staff. Its headline is the lowest of the three: 8 times adjusted profit, or £5.04m. Half is paid on completion, with the other half deferred over three years and tested against turnover. The downside is £3 for every £1 of shortfall, and crucially there is upside: £2.50 for every £1 of recurring income growth.

In the scenario, recurring income grows by 10 per cent a year, compounded, from £1.5m to roughly £2m by year three, with initial fees unchanged. That adds an illustrative £1.24m of upside, taking the total to £6.28m: the highest outcome of the three, from the lowest headline.

Victoria challenged the instinct that a shorter earn-out is always better. A short term gets cash in your hand sooner, but if you are still growing, plan to stay involved, or want time to recover from a market fall, a longer term with blending can work in your favour. Another tool she uses is a "true-up": a revaluation of the whole business part way through the earn-out, so growth increases the value of the money already paid as well as the money still to come.

Comparing the outcomes

Put side by side, the ranking reverses once the scenarios play out:

All figures are illustrative scenarios presented by Melo, not predictions or typical outcomes. Real deals depend on the firm, the buyer and the negotiated terms.

The scenarios were deliberately dramatic, but the lesson holds. Offers need to be judged against each other, against what your business can realistically deliver, and against your own objectives for yourself, your team and your clients.

Five questions to ask of any offer

Victoria's checklist for comparing offers when selling a financial planning firm:

Beyond the commercials, Victoria stressed the legal side of a deal. Buyers will ask for warranties and indemnities to protect what they acquire, while sellers need security over deferred payments in case the buyer cannot pay. Narrowing those protections, and reducing the chance of a claim, is as much a part of the final outcome as the multiple.

Key takeaways for UK advice firm owners

From the Q&A